Calif. Workers’ Comp Deductibles Not Subject to Premium Tax

December 19, 2002

The California Board of Equalization (BOE) ruled Dec. 18 that workers’ compensation deductibles are not subject to a proposed retroactive state premium tax. In an appeal brought by three companies, Employers Insurance Co. of Wausau, Wausau Business Insurance Co. and Wausau Underwriters Insurance Co., the BOE voted unanimously to bar the California Department of Insurance (DOI) from taxing workers’ comp deductibles.

While the appellants brought this action as a result of DOI assessments made for the 1997 tax year, it is expected the ruling will be extended to all insurers for all tax years.

“The California Board of Equalization has put principle over politics,” said Lamar Whitman, director of state and federal taxation for the Alliance of American Insurers. “This is a great victory for California. More importantly, it sends a powerful message that insurers are entitled to fair treatment, due process and equal protection under the law just like everyone else. We are pleased the Board of Equalization recognized that fact.”

Leading up to the hearing, the Alliance and its members were active in efforts to convince BOE members that neither California law nor regulations supported the DOI’s actions.

In a Dec. 12 letter to each BOE member, the Alliance argued strongly against the imposition of a retroactive tax: “The Alliance believes it is economically and fiscally disruptive for any administrative agency to announce the assessment of a new tax for periods and tax years that have already ended. Incredibly, this profoundly far-reaching tax policy was not open to public debate in the legislative or administrative hearing but was adopted in a ‘black box’ unilaterally, without prior notice or public input…Allowing retroactive taxation will destabilize businesses and make certainty in financial and business planning impossible.”

The Alliance will continue to oppose any legislation that runs counter to the original intent of AB 3075, which authorized deductible workers’ comp plans.

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